Coronavirus crisis: Fitch slashes India’s GDP growth outlook to 2% for FY21

GDP

India’s economic growth is most likely to report a 30-year low of 2 percent in FY21 as economic recession laid its hands on the global economy due to the lockdown due to coronavirus outbreak, Fitch Ratings said in its latest report on Friday.

GDP

The rating agency in its earlier report had forecasted India’s GDP growth for 2020-21 at 5.1 percent, lesser than 5.6 percent estimated in December 2019.

Besides, Fitch said that the lockdown in China will have a broad-based consequence on regional manufacturing supply-chains as the coronavirus spread has now stretched to involve local discretionary spending and exports.

The businesses will persist to face supply-chain hinderances even as parts of China return to work.

“Fitch now expects a global recession this year and recently cut our GDP growth forecast for India to 2 per cent for the fiscal year ending March 2021 after lowering it to 5.1 per cent previously, which would make it the slowest growth in India over the past 30 years,” it said.

On March 20, Fitch had reduced India’s growth forecast to 5.1 percent for FY 21, stating the coronavirus outbreak is most likely to hit business investment and exports.

As per the agency, micro, small and medium-sized enterprises (MSMEs) and the services sectors would be among the most hindered due to reduced consumer spending. The non-bank financial company (NBFC) will face liquidity crunch due to limited cash buffers, and borrower’s inability to repay their loans, it said.

“The challenges for India’s non-bank financial institutions (NBFI) will intensify as local measures to contain the spread of the coronavirus exert pressure on their operating performance and financial profiles. Government-imposed activity restrictions in India will raise operational complications for the NBFIs, while any escalation in local infections would deal a blow to economic sentiment,” Fitch added.

“These developments threaten to derail the incipient recovery in India’s credit environment following the NBFI crisis in 2018-2019, and Fitch has taken negative action on our rated Indian NBFI portfolio in light of these risks,” the agency said.

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